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Sequins AB is considering selling one of its two product lines. Product line A is expected to generate a free cash flow of 2 million per year with a growth rate of 3%. Product line B is expected to generate a free cash flow of 1 million per year with a growth rate of 5%. Product line A has a 29.8% cost of equity and a beta value of 3.10. Product line B has a beta value of 1.70 and the interest rate for treasury bills (T-bills) is 5%. Sequins AB has a cost of debt at 7%. The corporate tax rate is currently at 35% and Sequins AB has a debt-to-equity ratio of 2 which they plan to keep constant. What amount, after tax, must Sequins AB receive for each product line so that the sale of the product lines can be considered profitable?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M91774714

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